CONSUMER PRICES (6546/06)
Letter from the Chairman to John Healey
MP, Financial Secretary, HM Treasury
Your Explanatory Memorandum dated 7 March, submitted
on behalf of the Office for National Statistics, was considered
by Sub-Committee G on 23 March.
Your EM says that only the UK and Ireland are
opposed to this Proposal, although the Commission's EM reports
that Germany also voted against it while Hungary and Poland abstained.
Has the German position changed and why has this particular division
of opinion arisen among Member States?
It would help us to understand the significance
of the Government's position if you could explain the importance
of this particular index to the UK and the Government's technical
objections to it in non-specialist terms.
Although we accept that a precise estimate of
the extra costs of implementing the Proposal may depend on the
methodology employed, we would welcome the best indication you
can give of the probable costs and benefits involved to give us
a better understanding of how serious a problem this is likely
We note that the Commission do not appear to
have carried out a full Regulatory Impact Assessment and would
be glad to know whether the Government intend to demand one.
Neither the Commission document nor your EM
make any reference to subsidarity. We would be grateful if you
would confirm whether any subsidiarity issues may arise from this
Proposal and, if so, what opinion the Government has about them.
Your EM says that this Regulation is expected
to enter into force by December 2007 at the latest, but it does
not say anything about any plans for Council consideration, which
we also need to know.
We will keep this document under scrutiny pending
your reply on all the above points.
24 March 2006
Letter from John Healey MP to the Chairman
I am writing in response to your letter of 24
March on the above proposal, asking for further information.
I will firstly give some of the history of this
proposed regulation. At the Statistical Policy Committee (SPC)
in May 2005, all Member States voted in favour of it except the
UK, Ireland, and Germany who voted against and Hungary and Poland
who abstained. The voting broadly reflected current national statistical
practices, ie those voting in favour were those countries which
currently spread their price collection over a period of time.
However, the positions of Member States at SPC are only indicative.
At the meeting of the Council Working Party
on Statistics on 2 March 2006, the text of the draft Regulation
was supported by Member States under the condition that the provisions
of this Regulation shall be implemented in December 2007 at the
latest and take effect with the index for January 2008, one year
later than the previous proposals. The UK and Irish delegations
still expressed reservations. It is understood that Germany does
not believe that the regulation represents value for money (they
take the view that the benefits to harmonisation do not justify
the implementation cost) but voted in favour of it at the Council
Working Party because a one year deferment to the original implementation
of early 2007 was proposed and it became clear that with the change
in voting by Hungary and Poland the regulation could not be stopped.
A starting date of early 2008 makes implementation easier for
Germany because it coincides with the introduction of a new computer
programme for CPI-compilation. Hungary and Poland have not indicated
the reasons behind their changes of position. The UK voted against
In the UK the HICP is known as the Consumer
Prices Index (CPI) and is the UK inflation target. The UK is opposed
to the regulation as being too prescriptive to the point of being
over-concerned with the details of price collection (rather than
the comparability of the final index) and because its effect would
be to smooth out volatile prices, such as those experienced with
petrol prices and also seasonal price differences of fruit and
vegetable prices, thereby hiding genuine price movements. A smoothed
index can be a useful supplement to identify overall trends but
as an alternative index with no additional information, can make
an understanding of the main drivers of inflation more difficult.
A financial impact assessment of the implementation
cost has been made by the Commission. The impact on businesses
is minimal as the number of prices to be collected will be similar
to the number of prices collected at present, only the timing
of collection may change. The main impact of the Regulation falls
on the operations of National Statistical Institutes (NSIs). The
commission will fund two-thirds of any additional costs for the
first two years after implementation. The costs for the UK are
estimated to be about £700,000. Please note that this is
only an approximate estimation. A copy of the Commission's financial
impact assessment is given in the draft regulation (attached (not
In principle, the EM issued by the Commission
on this proposal states that subsidiarity does apply. In practice,
and unlike the primary purpose of previous HICP regulations, this
regulation relates to the comparability of the "inputs"
(basic data) of the index rather than the comparability of the
"outputs" (results). The proposed regulation sets out
rules for the price collection period for the HICP. It states
that price collection should take place at least over a period
of one working week around the centre of the month. For products
which show sharp and irregular price changes, the price collection
period should be extended to more than one weekin particular
for fresh food and energy products. As a minimum member states
must collect prices over at least six working days. Any collection
period up to the whole month is allowed and this is entirely at
the discretion of individual Member States.
This regulation has now been approved and adopted
under Qualified Majority Voting. It was taken as an "I"point
at Coreper on 29 March and adopted as an "A" point at
the Council on 25 April.
I hope this provides the clarification requested.
31 May 2006
Letter from the Chairman to John Healey
Thank you for your letter dated 31 May which
was considered by Sub-Committee G on 22 June.
We are grateful to you for clarifying the position
over the changes in voting by Member States on the Proposal and
for explaining how it is likely to work in practice.
We also note that, despite the UK's continuing
objections, the Proposal was adopted by qualified majority vote
at the Council on 25 April. We are therefore releasing the document
23 June 2006